No much value in Investec demerger
The demerger of Investec Asset Management soon to be renamed Ninety One from its parent specialist bank and asset manager will initially replicate the same dual-listed structure but is unlikely to unlock much value for shareholders.
The demerger of Investec Asset Management soon to be renamed Ninety One from its parent specialist bank and asset manager will initially replicate the same dual-listed structure, but is unlikely to unlock much value for shareholders.
“I think it is reasonably priced in relation to the likes of Coronation,” said Glen Baker, an Anchor Capital fund manager, based on his analysis of the expected price-to-earnings ratio and dividend yield of Ninety One.
Investec released details of the demerger on Friday, with Investec shareholders set to receive one share in Ninety One for every two held in the Investec group.
Investec shareholders will own 55% of the combined total issued shares of Ninety One.
Shareholder approval is the last outstanding requirement as regulatory approval has already been granted. Based on Investec’s market capitalisation of R85bn on Friday, this implies a value of R28bn for Ninety One. Baker pointed out that the comparison with Coronation was nuanced, given that much of the £120.8bn (R2.28-trillion) Investec Asset Management manages is denominated in foreign currency. Cy Jacobs, the cofounder of 36One Asset Management, agrees.
“Coronation has a higher component of retail assets in the funds it manages, which implies higher margins, and many have a performance fee component to them. Investec Asset Management, by contrast, manages more big-ticket, lower-margin portfolios for institutions, with the majority of its funds in foreign currencies,” says Jacobs.
Regulations dictated Ninety One’s initial form replicate its parent company. This will see Ninety One Plc list on the London Stock Exchange with a secondary inward listing on the JSE. Ninety One Ltd will list on the JSE concurrently.
So far as the two sets of shareholders are concerned (“plc” and “limited” entities) the dual-listed structure provides for the economic benefits of both companies to be combined and shared equally, meaning there is no distinction between shares held in either entity.
The structure also partially explains the exorbitant cost of the transaction which, including taxes, will amount to more than R1bn on what is effectively a R28bn transaction.
“One third is tax payable, so that implies transaction fees are about R700m, which is about 2.5% of the value of the deal, which in this type of market looks expensive. But the duallisted structure means they have probably had to pay more in relation to the transaction fees,” said Baker.
Ninety One said on Friday that it has nominated former De Beers CEO Gareth Penny as its first nonexecutive chairman.